Q. One of my grandchildren has a disability and receives SSI and Medi-Cal. I would like to leave him a bequest from my estate when I pass. But won’t doing so cause him to lose his public benefits?
A. Not if you plan correctly. As you probably know, your grandson cannot have more than $2,000 in savings or other nonexempt assets and still remain eligible for these benefits. Thus, the receipt of an inheritance would likely put him over that ceiling and terminate his eligibility. However, the law permits you to create a Special Needs Trust (“SNT”) to receive his inheritance without jeopardizing his public benefits. The law’s purpose is to allow you to set aside “private funds” to supplement his SSI and Medi-Cal, and to thereby enhance his qualify of life in a kind of public—private partnership.
You would create the SNT as part of your own estate plan, and you would designate someone other than your grandson to be the trustee, such as another family member or even the trust department of a bank. So long as properly created and managed, the funds in the SNT would supplement his needs by direct payment to third-party providers of goods and services, while still preserving your grandson’s public benefits.
Currently, a single individual on SSI, living independently, would receive $932 per month in California and $988 if blind (in 2019). Since the SSI program is designed to cover only food and housing expense, it would be best for the SNT to pay for expenses which are not food or housing, e.g. transportation, cell phone, computer, recreation, etc. Reason: payments for expenses which are not food or housing result in no reduction in his SSI or Medi-Cal benefits.
However, the SNT could even assist with the cost of food or housing, but in exchange for only a modest reduction in SSI. Example: if the cost of an apartment for him were $1500 per month, your grandson could pay, say, $200 of the cost out of his SSI, and the SNT could pay the $1,300 balance directly to the lessor. Your grandson’s SSI would then only be reduced by a modest $277 per month. Not a bad trade-off. Further, if the SNT had sufficient assets, it could actually pay much more than $1,300 per month to providers of goods and services for his benefit, and here’s the beauty about how this works: no matter how much the SNT pays toward his monthly housing or food expense, the maximum reduction in his monthly SSI benefit, in any single month, would never exceed $277 (in 2019). Thus, a well endowed SNT could generate a substantial benefit to a person with a disability, with only a modest reduction in his or her SSI and usually none to his or her Medi-Cal eligibility. The SSI rules which govern here are referred to as the “ISM Rules”, where ISM stands for ‘In Kind Support and Maintenance’.
Caution: the SNT should never distribute money directly to your grandson, as there would then be a dollar for dollar reduction in his SSI. Rather, payments should always be made to third-party providers of goods and services on his behalf.
Readers with a family member receiving public benefits, such as SSI or Medi-Cal, should always consider creating an SNT as part of their estate plan and thereby preserve their loved-one’s continuing access to those benefits while still providing funds for his or her supplemental needs.
NOTE: The Special Needs Trust is sometimes referred to as a Supplemental Needs Trust. They are essentially different names for the same kind of trust.